Consequence of Financial Crisis on Liquidity and Profitability of Commercial Banks in India: An Empirical Study

Abstract

In this paper we attempted to investigate impact of Financial Crisis on liquidity and profitability of public and private sector banks in India. Liquidity and profitability are two important parameters among many variables on which strength of banking systems depends. In order to accomplish this study, we have considered from year 2005 to 2018 and empirical evidences were drawn using descriptive statistics, correlation matrix and panel regression model. Mean ROA indicates low profitability for sample banks throughout the period of with substantial variations among banks. The result of correlation indicates that no two variables are highly correlated. ROA is negatively correlated with all the determinants except capital adequacy ratio (CAR) whereas; liquidity is positively correlated with all the determinants except efficiency and bank size. There is an insignificant positive impact of crisis on banks’ profitability and significant positive impact on liquidity. The positive association of liquidity with financial crisis indicating favorable and sound position of banks. The ownership structure indicates public banks are sound in maintaining their liquidity and private banks in earning capabilities during financial crisis.